NAFTA talks back on this week

NAFTA TALKS BACK ON THIS WEEK — If you followed our Milken pop-up newsletter last week, you know financiers along with Mexican and Canadian officials were hopeful in Los Angeles that a final deal could be reached on a new NAFTA agreement before election campaigns in the U.S. and Mexico take over this summer. In fact, the chatter was that a deal could come in the next week or two.

USTR Bob Lighthizer meets with Mexico’s Economy Minister Ildefonso Guajardo and Canadian Foreign Affairs Minister Chrystia Freeland this week in hopes of surmounting difficult obstacles on rules of origin, investor dispute resolution and the U.S. insistence on a sunset clause that would require re-approval of the measure every five years, among other issues.

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These are serious sticking points that could derail an agreement. And the Mexicans and Canadians are not thrilled with the potential re-imposition of steel and aluminum tariffs being used as a cudgel against them. Mexican officials view the U.S. rules of origin proposal as a non-starter and neither Mexico nor Canada want to have to go through a re-approval process every five years given how politically challenging it is.

The NAFTA meetings follow brief talks between Trump administration and Chinese officials in Beijing last week that brought little progress but at least fostered some direct dialogue. We are nearing the point where President Trump’s aggressive and disruptive approach to trade negotiations will either produce significant wins or blow up in potentially disastrous ways.

TIPPING POINT? — It appears from the Friday jobs report that employment gains may be slowing a bit. Wages remain fairly stagnant. Corporate profits may have topped out for the cycle. Markets are choppy. The U.S. deficit is rising as are interest rates. It certainly feels like the economy could eventually be tipped toward the next recession. And the end of NAFTA or a trade war with China could certainly by the trigger. Conversely, a new NAFTA deal coupled with some Chinese concessions and no trade war could propel the economy to an even longer expansion. High stakes.

JOBS DAY REWIND — Friday’s jobs report was mostly bad with a soft headline number of just 164K and the jobless rate dropping to 3.9 percent on a smaller labor force (a dynamic Trump previously cited as showing the low jobless rate was phony). But is the trend really weakening? If so, it would be bad for Republicans in the midterms.

Pantheon’s Ian Shepherdson: “It's entirely possible—though impossible to prove— that the weather is responsible for the below-consensus April payroll number. The household survey reported that 133K people were unable to work because of the weather …

“Stepping back from the short-term noise, it's very hard to argue that anything remotely alarming has happened to labor demand in the last few months. That said, we aren't ignoring the declines in the ISM employment indexes and the NFIB hiring intentions measure this month.”

** A message from SIFMA: Nationally, seniors lose an estimated $2.9 billion every year in cases of financial exploitation reported by media outlets, while only an estimated 1 in 44 cases is even reported to authorities. Together, we can do more to protect senior investors. Find out how at www.sifma.org/seniors.**

FIRST LOOK: ABA ON FINTECH — American Bankers Assoc. president Rob Nichols sent a white paper to Treasury late Friday laying out all the lobby group's recommendations in the space: “The paper outlines our support for innovation both inside and outside the banking system and policies that promote partnership. It also dives into very specific recommendations, both regulatory and legislative, to facilitate responsible innovation in financial services.” Read more.

ICYMI — Fed Vice Chair for Supervision Randy Quarles spoke at Stanford on Friday afternoon (with MM in the audience) with a focus on the interaction between liquidity regulation and monetary policy.

Cap Alpha’s Ian Katz: “The point underlying Quarles’ speech was that financial regulation and monetary policy are connected. In other words, in his job as reg czar, Quarles has to keep in the front of his mind the impact that regulations could end up having on monetary policy.

“He was exploring this through the prism of how the Liquidity Coverage Ratio interacts with the size of the Fed’s balance sheet. Quarles said the Fed will watch to ensure that the LCR doesn’t alter demand for cash by too much.”

POLITICO’s Victoria Guida: “Quarles … raised the possibility that a key liquidity rule could alter the impact of the Fed's monetary policy decisions. … [B]anks could also respond to the change by increasing their holdings of Treasuries to replace their cash holdings, he said. He said the Fed is ‘not constrained by such regulations’ in deciding how to conduct monetary policy.” Read more.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Colin Wilhelm on the latest GOP endorsement in Puerto Rico’s push for statehood. To get Morning Money every day before 6 a.m., please contact Pro Services at (703) 341-4600 or info@politicopro.com.

HOT CLICK — Don’t miss the great NYT story of Sylvia Bloom, a legal secretary who worked at the same firm for 67 years and built up a fortune through careful and steady investing. And then gave most of it away. Read more.

DRIVING THE WEEK — House expected to pass a Congressional Review Act (CRA) bill to cancel the CFPB’s “Indirect Auto Lending Rule,” per Axios' Jonathan Swan … President Trump holds a roundtable with auto industry CEOs on Friday where he is likely to get an earful on the impact of steel and aluminum tariffs and what could happen to supply chains if NAFTA blows up …

House Science subcommittee has a hearing on blockchain on Tuesday at 10:00 a.m. … Brookings has an event Thursday at 10:30 a.m. on economic mobility … Consumer Prices at 8:30 a.m. Thursday expected to rise 0.3 percent headline and 0.2 percent core … Univ. of Mich. Consumer Sentiment at 10:00 a.m. Friday expected to dip to 98.0 from 98.8 …

HOW CAM FINE WON— POLITICO’s Zachary Warmbrodt on the now-retired lobbyists’ tenure: “During his decade leading the Independent Community Bankers of America, Fine somehow managed to win the respect of both watchdogs and regulators. He also rattled Wall Street executives in his bid to convince Washington that small, ‘Main Street’ lenders were worthy of lighter regulation than the global banks that fueled the 2008 financial crisis” Read more.

BUFFETT ARCHIVE — CNBC, which hosts Warren Buffett this morning on “Squawk Box,” has just released an archive of all the legendary investor’s musings, annual meetings and more.

IGNORE THE WHITE HOUSE SPENDING “CUTS” — Stan Collender in Forbes: “Even if it were completely enacted and implemented, the spending reductions in the Trump plan would be less than 0.3 percent of the total federal budget, 1.5 percent of domestic appropriations and about 1.4 percent of the projected 2018 deficit.” Read more.

ALSO THIS WEEK: A NEW ROY MOORE? — POLITICO’s Alex Isenstadt: “There is growing concern among Republicans that Don Blankenship, a bombastic coal baron who has spent time in prison, is surging ahead of Tuesday’s West Virginia Senate primary — and a last-minute campaign is underway to stop him.” Read more.

SUMMERS: SECULAR STAGNATION STILL A RISK — Larry Summers in the FT: “[T]he idea of secular stagnation is that the private economy — unless stimulated by extraordinary public actions especially monetary and fiscal policies and, or, unsustainable private sector borrowing — will be prone to sluggish growth caused by insufficient demand. On this interpretation, the past few years have confirmed the hypothesis.” Read more.

FLY AROUND

BERKSHIRE WITHOUT BUFFETT? — AP’s Josh Funk: “Billionaire Warren Buffett deflected questions about his eventual successor at Berkshire Hathaway on Saturday, and encouraged the thousands of people at his annual meeting to focus more on big picture investing principles than day-to-day events. …

“Buffett doesn’t plan to retire, even though he’s 87 years old, but he invited more questions about his eventual successor earlier this year when he promoted Greg Abel and Ajit Jain to vice chairmen and expanded their responsibilities. Both men now oversee about half of Berkshire’s operating companies. Buffett and Munger both said little has changed because Berkshire’s businesses largely run themselves day-to-day.” Read more.

GREEK BANKS GET THE GO-AHEAD — WSJ’s Mektaria Stamouli: “Greece’s biggest banks received a clean bill of health from Europe’s regulators on Saturday, an important step toward the completion of an eight-year bailout program that has strained the country’s economy” Read more.

BOFA’S LOAN TO REMINGTON TESTS FIREARM PLEDGE — Reuters’ Tom Hals and Jessica DiNapoli: “Bank of America Corp is preparing to provide critical financing to Remington Outdoor Co., which makes assault-type rifles, just weeks after the U.S. bank said it would stop financing ‘military-style’ firearms for civilians.

“The bank is contributing $43.2 million to a $193 million lending package funded by seven banks, according to court documents, which will help put Remington back on stable footing as it emerges from bankruptcy later this month into an uncertain environment for gun makers.” Read more.

ACTIVIST INVESTMENT RISING IN ASIA — Reuters’ Alun David John: “Activist investing in Asia is rising steadily, driven more by local players than headline-grabbing foreign firms, as the region’s regulators pay greater attention to corporate governance, according to research from JP Morgan.” Read more.

WELLS LOOKS TO HIRE 20 MANAGING DIRECTORS — FT’s Laura Noonan: “Wells Fargo’s investment bank plans to hire a ‘couple of hundred’ people this year, including about 20 managing directors, a person with direct knowledge of the bank’s plans said, rejecting suggestions that the lender was restructuring and in retreat.

“The San Francisco-based bank has failed to shake off the investor and customer anger spawned by a bogus accounts scandal that has generated more than $1.5bn of fines and charges for the bank, the most recent being a $480m class-action settlement last Friday.” Read more.

FUND MANAGERS, ACCOUNTANTS RESTING EASIER — WSJ’s Michael Rapoport: “Managers at many mutual funds have one less thing to worry about after a Securities and Exchange Commission move this past week. The SEC proposed a fix for an issue that could have forced some funds to change their auditors for conflict-of-interest reasons, which had the potential to be laborious and expensive” Read more.

BUYING AND HOLDING THE MARKET HAS PITFALLS — Bloomberg’s Aaron Brown: “Perhaps the best-known piece of financial advice is that retail investors should buy and hold the market, which in practice usually means owning an index mutual fund or exchange-traded fund that mimics the performance of the S&P 500. This has been a winning strategy for investors over the decades, outperforming fads that come and go and paying for active management.

“S&P 500 stocks are cheap to trade and available in retail-friendly form. They are watched closely by legions of expert financial analysts. They represent most of the big sectors in the world and companies that do business in nearly every country and hold nearly every kind of asset. So they are sensible choices for the core of most investors’ growth portfolios.” Read more.

EMERGING MARKET INVESTORS BRACE FOR TURBULENCE — FT’s Jonathan Wheatley: “markets investors are braced for turbulence in the coming days following last week’s sharp currencies sell-off that led to drastic measures by Argentina’s central bank to stop a slide in the peso. Markets have been roiled by a stronger U.S. dollar, which has prompted a wave of selling in emerging market currencies, stocks and bonds. Argentina, which is struggling with high inflation and large deficits, responded to the hit on the peso last week by raising interest rates three times — from 27.25 percent to 40 percent.

“The ‘paradigm shift’ of a stronger dollar could trigger a bigger and longer-lasting emerging markets sell-off, warned Sonja Gibbs, senior director of the Institute of International Finance, an industry association. ‘If you look at the futures market for the dollar and U.S. Treasuries, short positions are at very high levels, akin to the taper tantrum,’ she said, referring to the developing markets shake-up in 2013 when the U.S. announced an end to ultra-loose monetary policies.” Read more.

ALSO FOR YOUR RADAR

ELAINE CHAO INTERVIEWS SPARK CONCERN — POLITICO’s Tanya Snyder: “In at least a dozen interviews with Chinese and Chinese-American media outlets since her nomination, Transportation Secretary Elaine Chao has appeared beside her shipping magnate father, whose company carries goods between the United States and Asia, and who has given Chao and her husband at least $5 million in the past 10 years. …

“The appearances raise ethical concerns, experts say, because public officials are legally banned from using their office for any form of private gain for themselves or others. In the videos, James Chao, who has four other living daughters, sits beside the transportation secretary while discussing the family business — which has expanded in recent years and relies in part on Asian and Asian-American customers — and his 2016 biography, which touts him as a business success and philanthropic leader.” Read more.

ICBA PRESSES ON SENATE BILL — The ICBA, under new President and CEO Rebeca Romero Rainey, is submitting over 10,000 signatures to the House in favor of the Senate Banking bill. Read more.

PAULSEN TAKES ISSUE WITH RUBIO — Rep. Erik Paulsen (R-Minn.), chair of the Joint Economic Committee, in a WSJ op-ed: “My friend and colleague, Florida Sen. Marco Rubio, argued in a recent interview that a different approach to tax reform, including a smaller corporate rate cut, would have more directly benefited workers. Based on all the evidence … I must respectfully disagree.

“When House Republicans crafted the tax-reform law last year, our priority was to boost the economy so workers could thrive. Cutting the U.S. corporate tax rate from the highest in the developed world to a competitive 21 percent wasn’t a luxury. It was a crucial step to prevent the loss of American headquarters and jobs to other nations.” Read more.

** A message from SIFMA: Did you know financial decision-making skills decline as we age? Unfortunately, financial exploitation of older adults is a serious and growing issue with devastating impact.

A New York State report found that 2/3 of all financial exploitation was committed by family members. Seniors can often lose the entirety of their retirement savings, leaving them unable to maintain independence and coping with significant stress and health impacts. As our country ages - 18% of the nation’s population will be 65+ by 2030 - the scope of this problem can only grow.

It is vital that we protect senior investors from financial exploitation. SIFMA is working with industry members, academics, and state and federal policymakers to advance policies, regulations and resources which enhance senior investor protections. Learn how you can make a difference at www.sifma.org/seniors. **

About The Author : Ben White

Ben White is POLITICO Pro's chief economic correspondent and author of the “Morning Money” column covering the nexus of finance and public policy.

Prior to joining POLITICO in the fall of 2009, Mr. White served as a Wall Street reporter for the New York Times, where he shared a Society of Business Editors and Writers award for breaking news coverage of the financial crisis.

From 2005 to 2007, White was Wall Street correspondent and U.S. Banking Editor at the Financial Times.

White worked at the Washington Post for nine years before joining the FT. He served as national political researcher and research assistant to columnist David S. Broder and later as Wall Street correspondent.

White, a 1994 graduate of Kenyon College, has two sons and lives in New York City.

About The Author : Aubree Eliza Weaver

Aubree Eliza Weaver is a deputy production director for POLITICO Pro, having previously served as a senior web producer. Aubree also co-authors Morning Money, POLITICO's daily morning newsletter on Washington and Wall Street.

She graduated from Le Moyne College in her hometown of Syracuse, N.Y., where she was the editor-in-chief of the school’s newspaper, The Dolphin. As a student, she interned with Time Warner Cable’s Syracuse affiliate, YNN, as a news broadcast intern. Aubree moved to D.C. upon graduating in 2013 to work as a summer program adviser for the Institute on Political Journalism. She was a student in the program in the summer of 2011, when she first fell in love with D.C.